What is a Bank? Generally speaking a bank is an institution that deals with money. The origin of the word bank is traced from the Italian word ‘banca’ banc or banque, which means ‘bench’. It is stated that in Middle Ages the European money changers and money lenders displayed their coins on the benches and conducted their business. Hence the term bench refers to the bench on which the business of money changing and money lending was conducted.
A commercial bank’s primary function is to accept deposits
from individual and extend loans to those who are in need of money. Deposits are
collected in different forms each are of which have its own features and serves
a particular purpose. For example a saving account is meant for accumulating
small savings and a current account for settlement of business transactions. A fixed
deposit account to preserve a sum of money over a definite period and earn
interest on it.
TYPES OF BANK ACCOUNTS
Saving bank account – Banks collect savings in the form of
savings account. Anybody can voluntarily open a savings account. Savings are
deposited in the account from time to time. the account holders are permitted
to withdraw the same from their saving account but there are certain restrictions
on the frequency of withdrawals. Thus, the main purpose of this type of account
is to develop the habit of saving among people groups of the society.
Features of savings account:
- Fixed income
groups of the society find it convenient to operate a savings account. Those getting
fixed monthly salary in their savings account either with the savings bank or
with the post office.
- It can
be opened either in the name of a single individual or jointly in the names of
two or more persons. A joint account can be operated either by all of them or
any of them on behalf of all.
- Any amount
not exceeding the balance to the credit of the savings account can be
withdrawn. The number of withdrawals can be made either by submitting withdrawals
slips or cheques at the banks counter. Today you can also use online banking or
debit cards. Banks on savings accounts balances allow interest. The same is credited
to each account periodically generally twice a year on 30th September
and 31st March in each financial year.
- Every savings
account holder is given a paying slip and a passbook is issued. Withdrawals can
be made on the basis of withdrawal slips. Pay-in-slip are useful for making deposits
in the account. The passbook shows balance to the credit of the account holder
form time to time. It has to be updated. The bank makes entries in the passbook
and returns it to the account holder. Now a days, you can also get you bank
statement via email, or online banking.
- No overdraft
facility is available in case of savings account.
- A savings
account can be opened in the name of a minor however, he/she is not permitted
to withdraw money from his/her account till he/she becomes a major.
Current account – This type of account is suitable for
business persons since there is no restriction for withdrawal or cheque
payments made through a current account. It is also termed as a demand deposited
account, as the bank is under obligation to pay any amount as and when demanded
by the account holder. Some banks may inquire about the business reputation before
allowing a business person to open a current account.
Features of current account
- Amount
deposited in a current account is payable on demand made by the account holder.
- There are
practically no restrictions on the operation of this account.
- Normally
no interest is payable on current account balances.
- Overdraft
facility is available on current account.
Fixed Deposit Account – In this account a fixed amount is
deposited for a fixed period such as for one year, three years and so on. The amount
deposited cannot be withdrawn before the expiry of that period. However,
nowadays withdrawals are permitted subject to the deduction by the bank.
Features of fixed deposit account
- A fixed
amount is deposited for a fixed period.
- On the
expiry of the term of deposit the bank returns the balance to the credit of the
depositor together with interest to him.
- A fixed
deposit can be renewed on expiry of its term.
- The rate
of interest allowed by the bank on fixed deposits varies with the term of
deposit. Larger the period of deposit higher the rate of interest.
- The depositor
is neither given a cheque book or passbook, only a receipt called FD receipt,
the bank issues. This receipt serves as an acknowledgement of the deposit. It must
be presented to the bank while claiming the refund of its deposit on its maturity.
- Certain
banks permit borrowing against fixed deposit.
- Fixed deposits
are suitable in case of idle funds lying with an individual or an organization.
Recurring deposit account – This account is meant for
accumulating small savings regularly deposited by the account holder. A recurring
deposit account is just like a savings account with the difference that
withdrawals are permitted from the savings account, whereas in case of recurring
account the amount cannot be withdrawn before the expiry of the period for
which the account is opened. Moreover, the rate of interest in a recurring
account is higher than that of ordinary saving account.
Features of a recurring deposit account
- The
main object of recurring deposits is to provide regular savings out of fixed
periodic income.
- A fixed
sum has to be regularly deposited in this account every month for a certain period.
- The rate
of interest is more or less equal to that on fixed deposit.
- The depositor
is supplied with passbook, which shows the amount accumulated in his account from
time to time.
- On
expiry of the fixed period the depositor gets the fixed amount deposited by him
together with the interest on it.
- Recurring
deposit account can be opened by a person in the name of his minor ward.
Procedure for opening a bank account.
Proposal – An application form prescribed by the bank has
to be filled in and submitted to the bank along with specimen signature on a
separate card.
Introduction – Mainly for opening a current account the person
needs to be introduced to the bank by another person operating a similar account
with the same bank. The person who introduces is required to sign the application
form quoting his account number there in.
Acceptance of the proposal – If the bank is satisfied with the
reference supplied by the applicant it accepts the proposal and proceeds to
open an account in the name of the applicant.
KYC – A know your customer (KYC) form duly filled is
mandatory.
Opening of the account – The applicant is asked by the bank
to deposit a certain amount of money (minimum amount). After the applicant has
deposited the minimum sum, the account is opened by the bank and the account
holders name is entered in the bank books and an account number is allotted.
Pay in slip book – This book contains certain slips with perforated
counter foils. Whenever cash or cheque is to be deposited a duly completed slip
is to be submitted to the counter of the bank along with the cash or cheque. The
receiving cashier at the counter, accepts the amount, stamps the slip along with
the counterfoil, retains the slip and returns the counter foil to the depositor
for his records.
Passbook – It is an extract of the depositors account in the
bank books. It shows the amount deposited amongst withdrawn and balance to the
credit of the account from time to time. The accountant or officer certifies
the balance by placing his initials. The passbook should be submitted to the
bank from time to time to enable the bank to make entries therein and to update
the passbook. It also shows rules regarding the operation of the account.
Cheque book – It is a book to enable the account holder to
withdraw amount from his account or to make payments to other parties, the bank
supplies with a cheque form. All cheque forms are numbered serially. When all
the leaves of the cheque book are used, a new check book is issued on producing
the requisition slip attached with every cheque book. This slip should be
signed by the account holder and should be presented to the bank in order to obtain
a new cheque book.
Precautions to be taken while drawing a cheque
- Enough
balance with the bank – Before issuing a cheque the drawer must verify his bank
balance. He should not issue a cheque exceeding his bank balance. Similarly care
should be taken to see that minimum balance always remains in the account.
- Correct
date – Date should be written in legible hand on the cheque in the space
provided for this purpose. The date should be correct, if the date on the cheque
is prior to six months (three months) it is called a ‘Stale cheque’.
- Correct
amount – It is very important that one writes the amount correctly and clearly,
amount in words and figures should be the same and its should be written close
to the words Rupees. If the amount written in words and figures differ the cheque
will not be honored by the bank. No space should be left after the words and
the word ‘only’ should be written after the amount expressed in words.
- Exact signature – A cheque must be duly signed by the account holder. The drawer should see that his signature on the cheque is same as his specimen signature supplied to the bank earlier.
Authentication of alterations – Any alteration or change in
a cheque must be authenticated by full signature of the drawer. This is to
ensure than none other than the account holder has made the alteration.
Account number – Every cheque must bear the account number
of the drawer – the bank usually prints it themselves.
Writing in ink – A cheque should be written with a pen or
be typed. It should never be written with a pencil to prevent fraudulent alteration.
Proper crossing – One should avoid issuing a bearer cheque unless
you yourself want to withdraw cash or unless the person to whom the cheque is
being issued does not have a bank account. When cheques are sent through post
they must be crossed as crossing a cheque gives enough protection against
payment to a wrong person.
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